Introduction to Cardano (ADA) Part 8

Three generations of cryptocurrencies. Introduction to Cardano ADA. Part 8. Interoperability and sustainability on the Cardano network.

Cardano approaches sustainability from several viewpoints. The first viewpoint is the issue of consensus and the network being able to reach an agreement and implement changes while at the same time staying decentralized.

Sustainability as absence of forks and ability to reach consensus

In the business world, sustainability is often about organizations having enough funds to sustain their operations. In the blockchain world, it is more than just about finances. As the history of the Bitcoin network and the Ethereum network shows, the issue of reaching consensus and having users decide “Where should we go?” is not any less important that the issue of “How do we get the funding?”

From this viewpoint, Cardano plans to achieve sustainability by implementing its Ouroboros proof-of-stake algorithm. The team behind the algorithm comes from five academic institutions. Professor Aggelos Kiayias, the director of Blockchain Technology Laboratory at the University of Edinburgh, is leading the team. One of the core innovations of the protocol is its modularity, which would allow the network to create sidechains, checkpoints and delegation mechanisms for parallel blockchains without disrupting the operations and functionality of the entire network.

Also, the developers of the Cardano network plan to have several layers to the network. The first layer is going to be Cardano Settlement Layer or CSL. This layer of the network will be handling financial transactions. In a way, it will operate similarly to Bitcoin (with proof-of-stake instead proof of work).

The second layer of the Cardano platform will be Cardano Computation Layer (CCL). This layer will run smart contracts and allow for execution of decentralized applications. The CCL layer will be independent from the CSL layer, meaning that software changes and implementations will not affect financial transactions.

Financial sustainability of the Cardano network

In the blockchain world, financial sustainability can come through a number of means. The first way is having project supporters, enthusiasts and volunteers provide the funding and perform at least a part of maintenance and development work for free. The issue with this approach is that, as history shows, with many early developers either lose interest or have to start meeting certain financial obligations that are not compatible with doing a lot of work for free. When this happens, the community behind the developers often can’t agree on the direction of the project and the development slows down significantly. Another issue with this approach is that it often leads to centralization of power in blockchain projects.

The next approach to funding is via an initial coin offering (ICO). The problem with this approach is that an ICO can only bring a limited amount of funding and sooner or later the project will run out of the funds collected during the ICO.

The project has sold close to 26 billion ADA coins during the launch. Also during the launch, it has generated vouchers for close to 5 billion ADA. The vouchers went to three separate entities of the Cardano community. The total supply of ADA coins will be capped at 45 billion, which means that about 14 million coins will be generated through token minting.

Moving forward, Cardano will have a treasury that will get a portion of newly minted coins and fees, similarly to how it happens on the Dash network. Also similarly to the Dash network, the stakeholders on the Cardano network will be deciding what happens to the money in the Cardano treasury.

Interoperability of the Cardano network

The idea of interoperability is based on the fact that just like there is a number of regular currencies and assets that people trade, including US Dollar, Euro, Japanese Yen, gold, silver, and platinum, there will likely be several cryptocurrencies.

Even today different cryptocurrencies are carving out niches for themselves. For example, many people consider Bitcoin to be “digital gold” and “storage or value.” They believe that while using Bitcoin today is not practical due to high transaction fees (that in January of 2018 ranged between USD$7 and USD$26), there has been no other digital currency that was able to sustain similar levels of attempted attacks as Bitcoin did.

On the other hand, there is Dogecoin that is valued at less than USD$0.01 per coin. Even with this value of individual coins, Dogecoin still has market capitalization of over 500 million dollars and many people view it and use it as a “digital tipping currency” because of the low value per coin and relatively long and stable history of the Dogecoin network.

As of the end of 2017 Bitcoin has remained by far the largest digital currency, yet at the same time the ecosystem of cryptocurrencies and blockchain networks keeps growing very quickly and in terms of market percentage, the dominance of Bitcoin is getting lower and lower.

Most digital currencies are not compatible with each other and “do not talk to each other,” and exchanging one digital currency into another may be complicated. To solve this issue, Cardano has introduced non-interactive proof of proof-of-work algorithm that it plans to use to validate transactions on a variety of networks. Cardano creators envision a multi-blockchain client that serves as a connector between various digital currencies and is able to verify transactions on a variety of networks.